Profits from the ground up

PaulLin

NEW YORK (MarketWatch) -- Mark Coffelt puts his money where his mouth is.

The manager of Empiric Core Equity Fund
EMCAX, +0.24%
has more than $1 million of his own net-worth invested in the mutual fund he manages. All of the fund's employees have money in the fund, too. That puts everyone involved in the fund's operations on the same page: They have a vested interest in seeing the portfolio perform.

"It's important," said Coffelt. "If you buy a fund and the manager doesn't have all his money in it, I'm not sure he's focused on the fund."

Coffelt's focus has been sharp for his fund's shareholders. The multicap value portfolio's class-A shares rose 25.4% in the 12 months through Oct. 1, versus a 15.2% average return for its peers, according to fund-tracker Lipper Inc. Empiric Core Equity's three-year annualized 16.3% advance also tops its category's 13.4% average gain.

Part of the strategy has been a go-anywhere approach, with no restriction on sectors. "It's too difficult to dance to someone else's tune," Coffelt said.

"We try to identify the sweet spots of the market," he said. "Today that's really midcap, large-cap and international growth, with markets outside the U.S. growing faster than the U.S. economy."

Accordingly, some 45% of the fund's holdings are in non-U.S. stocks traded in this country as American Depositary Receipts, or ADRs. In addition, the portfolio has roughly 15% of holdings in materials stocks, about 14% in industrials, and 7% in energy.

"There's a huge incentive for companies to go out and search for oil" with $80/barrel crude, Coffelt said. Offshore engineering and construction contractor Acergy handles "well-head placement and all the other sea work for these big oil drilling platforms."

Coffelt has committed 1.5% of the fund's assets to Acergy, and the shares have about doubled in the past 12 months. "I'd add to [shares] today," he said, though he notes that the fund currently is fully positioned in the stock.

Shares of Acergy lost 95 cents to $29.44 in New York trading on Tuesday.

"They really do it all," he said. "They have aluminum; they have fertilizer which is in huge demand; they do iron ore. So they really cover the whole spectrum," he said. "So it's a nice way to play the commodity cycle, which should continue on for a while."

On Tuesday, New York-listed shares of Companhia Vale do Rio Doce lost 69 cents to $35.45.

Another way the fund has profited from high commodity prices: Syngenta AG
SYT, +0.49%
a Swiss agribusiness.

"We either want to own commodity businesses, or we want to own companies that support the commodity businesses. What Syngenta does is provide fertilizer and hybrid seeds -- especially the oil-type seeds, soybeans and so forth," Coffelt said.

That could become important in a world that aims to diversify away from fossil fuels, he notes.

"As we're trying to get more and more alternatives to oil and gas, the oil seeds [are] really a natural place to go," he said.

In New York trading Tuesday, shares of Syngenta fell 47 cents to $42.68.

Given the subprime mortgage debacle and the declining U.S. dollar, Coffelt said he's been avoiding financials and consumer discretionary stocks. American consumers "will have to save and buckle down" in order to recover from the mess, he adds.

Still, Coffelt noted the situation -- and his mix of stocks in the portfolio -- may change in coming quarters.

A weak dollar can benefit U.S. companies with international operations that need to repatriate earnings. At the same time, if European central banks decide to start pushing interest rates lower, the dollar could stabilize at current levels, he said. Meantime U.S. consumers may get a lift from the Federal Reserve's recent interest-rate cut.

"I was more cautious prior to the Fed cut. Now that the Fed has cut by 50 basis points, I'm [more] bullish," he said.

It doesn't mean, however, that Coffelt starts piling into shares of financial companies.

"There are probably some good buys, but you don't know which ones are sitting on subprime" business, he said. "I'd really rather not play that game."

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